ASC imposes large cost for dragging out regulatory hearing

The former operator of a failed investment club is being sanctioned for an unregistered crypto-trading scheme, but his disingenuous defence has proven even costlier.

An Alberta Securities Commission (ASC) hearing panel banned Jan Gregory Cerato for eight years and ordered him to pay a $40,000 penalty after finding that he illegally distributed securities by running a private investment club to trade cryptoassets. It also ordered him to pay $125,000 for the cost of the hearing and investigation into his conduct.

Cerato raised at least $200,000 from investors to join the WhaleClub, which sought to trade cryptoassets on behalf of its members.

“Cerato did not file a prospectus with the ASC, nor was there an exemption from the prospectus requirement available in the circumstances,” the regulator said.

“Ultimately, the trading did not generate any profits and investors received only a small portion of their initial investment, resulting in the loss of thousands of dollars,” it noted.

In levying the penalty for the violations, the panel concluded that “Cerato engaged in serious capital market misconduct for which he accepted little or no responsibility or regret and instead blamed others and exhibited contempt towards those who were harmed by his actions.”

However, his defence of the regulator’s allegations proved even costlier: ASC staff sought, and the panel granted, a costs order of $125,000 in the case.

According to the panel, the regulator’s staff said the hearing and investigation cost $147,000; responding to a separate, failed stay application cost another $15,480.

Cerato argued for a stay of the proceedings, claiming that the regulator infringed on his constitutional right to freedom of expression — a claim the panel rejected.

He also sought a stay of the proceedings based on an alleged administrative delay.

That request, which was heard by a different ASC panel, was also dismissed.

The panel said ASC staff acknowledged that the costs of the proceedings were “more than usual and pointed to several reasons for the increased costs,” including the attempted constitutional challenge.

While the regulator’s staff acknowledged that Cerato was entitled to defend himself, it also maintained that he’s responsible for the consequences of his defence strategy. The constitutional challenge was described in the hearing panel’s merits decision as “a disingenuous contrivance advanced for improper purposes.”

The panel concluded the proposed costs bill was fair in the circumstances. “Cerato did not contribute to an efficient resolution of staff’s allegations,” it said. “Despite being represented by counsel during the investigation and the hearing, his defence strategy and tactics complicated and lengthened the merits hearing.”

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.